The Bank of England’s (BoE) next meeting to determine interest rates is on Thursday 7 August, and all eyes will be on the Monetary Policy Committee (MPC) and whether its members opt to continue lowering rates.
The base rate – currently at 4.25 per cent following cuts in February and May – impacts consumers and taxpayers through everything from their mortgages to savings, so what do experts foresee both next week and beyond?
Will interest rates be cut?
Probably, but no longer definitely.
We have been seeing the MPC opt for a quarterly rate this year, in line with governor Andrew Bailey’s constant refrain of “gradual and careful”. The BoE chief did say as recently as this week he still sees a downward trend, but that doesn’t guarantee that the cut comes now.
As recently as last week, markets were pricing in an 85 per cent chance of a rate cut, but inflation data for June came in at 3.6 per cent – hotter than expected and a real headache to the question of rates cuts.
Factor in that as well as the domestic situation, we’ve had more uncertainty in 2025 over Donald Trump’s tariffs, businesses dealing with higher labour costs coming into force and escalated tensions after Israel’s strike on Iran led to a brief oil price scare.
As such, most analysts expect the MPC’s June decision to be a split vote, but at present more still lean towards a cut in the Bank Rate (to give it the official term) to 4.00 per cent.
Rob Morgan, chief investment analyst at Charles Stanley, said it should still happen this time around – but beyond that the picture is more cloudy: “An August cut still seems likely as the lacklustre growth picture and the deteriorating labour market come more sharply into focus, but the lingering effect of wage inflation and payroll costs could make further cuts a longer time coming.”
It’s worth remembering that for mortgages in particular, many products are priced using future expectations of the interest rate, so changes in that market can already be accounted for.
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Influential factors around cuts
The MPC has nine members and their votes decide if the base rate is cut, raised or kept the same.
Among the factors MPC members will have been looking at are job and wages data, the level of inflation across the UK, economic growth and also external factors which can impact the UK.
Inflation data came in higher than expected in June at 3.6 per cent, through food and transport costs particularly. Higher inflation is a reason to keep interest rates up, as it can discourage businesses from investing in new projects or hiring – which in turn raises earnings and spending power. Therefore, fewer jobs or pay hikes means the opposite: lower spending power, lower demand, helping stem further price rises.
Recent key data has shown salary growth slowing and unemployment rising – these are factors which can see interest rates decrease.
It means the BoE have a real balancing act to perform this time, as noted by Peter Stimson of MPowered Mortgages.
“Britain’s inflationary relapse [in June] will crystallise the view that the time is right to cut the Base Rate to give the stagnant economy the boost it needs, and when the MPC meets in three weeks’ time it’s likely several members will vote to hold off on a rate cut,” he said.
“While the weakness of the economy means the Bank will be keen to resume rate cuts in coming months, the likelihood of an August cut has plunged from near certain to barely 50/50.”
What about the rest of 2025?
Many analysts still expect two rate cuts between now and the end of 2025, one in August and one in November, to bring the base rate down to 3.75 per cent.
Rob Clarry, investment strategist at Evelyn Partners, noted the markets still felt that way too: “Traders continue to expect two further 25 basis point interest rate cuts this year.”
Deutsche Bank’s chief UK economist, Sanjay Raja, believes future cuts will depend almost entirely on the jobs market. “Is an August rate cut in jeopardy? No, we don’t think so,” he said. “There’s enough of a slowdown in GDP and the labour market to warrant a ‘gradual and careful’ easing of monetary policy. But the onus now rests on the labour market to shape how far and how fast the MPC can cut this year and next.”
